Ups and Downs of Trade Protectionism
Tariffs and trade barriers are complex matters that have plagued U.S. industry, especially steelmakers, for a century and a half. Citizens do not realize that imposed restrictions can have negative impacts elsewhere in a national economy and are always “manipulated favoritism.”
Technological changes drive this regulatory system. From 1870 to 1965, open-hearth furnaces were most popular. Basic-oxygen-type furnaces came along in 1952, and they accounted for 50% of production by 1970. And, while they existed in 1880, electric-arc furnaces came along with mini-mills, which make 60% of all domestic steel today in the U.S. In 2015, U.S. steelmaking employed 147,000 workers, with labor productivity improving from 10.1 labor hours per ton in 1980 to 1.9 in 2016. Today, global steelmaking capacity is 700 million metric tons more than demand. But wait … government has re-entered the picture.
The U.S. currently has 75 anti-dumping and countervailing duty orders in place for iron and steel mill imports; 22 were ordered in the past two years, and 53 have undergone review more than once. A separate category of tariff reviews by the Department of Commerce that addresses potential injury to national security is now under way as required by Section 232 of the Trade Expansion Act of 1962, under which the President has powers to adjust imports and use tariffs. This is of minimal probable impact because the U.S. defense sector consumes only 0.3% of steel-industry output.
The U.S. is unusual because it has no steel tariffs under this law today, but it has had 150 cases for duties with 13 cases pending. A review process is now under way and is scheduled to be completed 270 days after initiation. The study reports that U.S. capacity utilization was 71% in 2016, down from 77.5% in 2014, while import penetration of mill products was 25.5%. Steel imports were 34% higher in March 2017 than in March 2016.
Fifteen years ago, the International Trade Commission (ITC) and Department of Commerce studied steel tariffs. In 2002, the President imposed tariffs of up to 30% on many steel imports and determined the next year that the tariffs had negative effects on consuming industries. As a result, 200,000 in the labor force of steel-consuming manufacturers lost their jobs in 2002. A consequence of all this is that “dumping” by foreign producers is an “act of charging a lower price for like goods in a foreign market than one charges for the same goods in a domestic market.” (Note that the World Trade Organization condemns dumping, although the practice is not prohibited.) If a dumping charge is levied and confirmed, a tariff may be applied. As of April 19, 2017, 152 dumping confirmed orders on steel from 32 countries (18% from China) are currently in place, amounting to 40% of all such orders in effect. Also, matters with China are not getting better. The country has added 550 metric tons of new capacity since 2007 (that’s seven times U.S. production).
Every national public and industrial sector must realize and admit that tariffs are a form of protectionism that is here to stay. For example, a 2000 study by the Cato Institute of the U.S.-Canadian Softwood Lumber Agreement found that import barriers imposed by the agreement raised prices in U.S. markets by $50 to $80 per thousand board feet. These higher prices led to higher home costs, pricing 300,000 U.S. citizens out of the housing market. Reduced profitability in lumber-using industries, which employed 6 million workers compared to 217,000 in logging and sawmills, was an overlooked result of tariff protectionism. The interests of those who pay the costs of protectionism are systematically ignored.
This is a difficult problem to address and resolve. It is suggested that honesty and realism prevail in the method, which is currently unfolding and will be resolved within the 270-day start-to-finish process. A good idea is to withdraw from trade treaties such as the Trans-Pacific Partnership and the North American Free Trade Agreement (U.S., Canada, and Mexico). You are urged to check out the Department of Commerce study under way and take an active part in commentaries that help America.